Long-term effects of extractive and inclusive institutions on entrepreneurship persistence in Russian regions

Abstract

Some institutions can restrict or stimulate the business activity, which affects long­term economic growth. To assess this influence on regional level, we have collected and processed historical data on the distribution of serfs, the creation of universities, and business activity over more than a century. By business activity, we mean various direct and indirect assessments of the involvement of the population in entrepreneurial activity: merchants, NEPmen, cooperatives, small businesses, etc. Although the geography of business activity has constantly changed, we can identify relatively stable centers (Moscow, St. Petersburg, the south of the Far Eastern Russia) and the periphery (some regions of the North Caucasus, the Central Black Earth and the Volga regions). Econometric calculations confirm the existence of a relationship between the current density of small businesses in the Russian regions and the density of cooperatives in the late Soviet period; the relationship with the density of retail enterprises disappears by the 1970s as the planned economy strengthens. But the relationship with the merchant class is ambiguous: only in some regions did the entrepreneurial culture manage to survive the Soviet period. We distinguish three main channels of influence of the historical level of business activity on the modern one: geographical, functional, and socio­cultural. According to the calculations, the earlier emergence of universities in the regions contributed to the spread of business culture and could stimulate the emergence of more inclusive institutions, but serfdom, as an extractive institution, on the contrary, could limit incentives for entrepreneurship. Even after a radical change in the political and economic regime, the influence of extractive institutions on business activity may persist, and inclusive institutions take a significant amount of time to take root.